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Sep 22 2008 3:09pm EDT
The Goldman & Morgan Switcheroo: How Tech Sees It
Kevin Maney writes: I've been talking today with several people in tech circles about Morgan Stanley and Goldman Sachs converting to bank holding companies, and the Wall Street crisis in general. What does it mean for the technology industry? As investment banks, Morgan and Goldman had much greater leeway when it underwrote tech IPOs or put together mergers. As commercial banks, they will have many more restrictions on those roles.
Overall, the tech folks don't seem hugely alarmed. Tech IPOs have been essentially dead for the past couple of years anyway. The change for Morgan and Goldman definitely makes them deader, but start-ups long ago stopped thinking about IPOs and have turned instead to either building sustainable independent businesses or selling out to the Googles and Ciscos of the world.
Jonathan Miller, former AOL CEO and recently nearly a member of Yahoo's board, had this to say:
IPOs are all on hold for now. So exit strategies have to be M&A based, i.e. filling holes that existing companies need rather than just new cool things, so to speak. I think M&A will continue, but with smaller deals -- sub $200 million -- and perhaps huge deals that are considered truly strategic. The stuff that is pretty big-- $300 million to $2 billion -- gets really hurt in this period. Too big for most M&A activity and too small to break through the IPO deadlock.
And I heard this from Howard Morgan, long-time tech investor and vice chairman of idealab:
The investment banking functions of IPO and M&A should continue - although we've seen a huge drop in IPO activity anyway. But being a bank holding company, now that there is no Glass Steagall, mainly affects their proprietary trading businesses, not the basic investment banking. I think the "death of investment banking" is way overblown. In the tech area, smaller firms like Thomas Weisel should reap some benefits. But it all depends on the overall economy getting healthier.
Of course, nothing will get done in the very short term as all the bankers concentrate on keeping their own businesses afloat -- or finding new positions elsewhere. If any deal was in the pipeline before last week, it won't get done till later this year.
